2010 TAX CASES

CASE TITLE FACTS OF THE CASE ISSUE/S RULING

1. Fishwealth Canning Corporation Whether or not the filing of a NO. A Motion for Reconsideration of the denial of the administrative
Vs. Commissioner Of Internal motion for reconsideration protest does not toll the 30-day period to appeal to the Court of Tax
Revenue (G.R. No. 179343; tolls the running of the 30-day Appeals.
January 21, 2010) period to appeal to the Court
of Tax Appeals
(Macanang, Domer)
Panasonic Communications Whether or not Panasonic The petition is DENIED. NO.
Imaging Corporation Of The qualifies for zero-rated sales
PhilippinesVs.Commissione and can refund its unutilized VAT is a tax on consumption, an indirect tax that the provider of
r of Internal Revenue(G.R input VAT goods or services may pass on to his customers. Under the VAT
No. 178090 February 8, method of taxation, which is invoice-based, an entity can subtract
2010) from the VAT charged on its sales or outputs the VAT it paid on its
purchases, inputs and imports. Under the 1997 NIRC, if at the end of
(Guim, Amiel) a taxable quarter the seller charges output taxes equal to the input
taxes that his suppliers passed on to him, no payment is required of
him. It is when his output taxes exceed his input taxes that he has to
pay the excess to the BIR. If the input taxes exceed the output
taxes, however, the excess payment shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from the
acquisition of capital goods, any excess over the output taxes shall
instead be refunded to the taxpayer. Under RMC 42-2003, failure to
comply with invoicing requirements will result in the disallowance of
his claim for refund. Since Section 4.108-1 of RR 7-95 is effective
then, it should comply with word zero-rated for zero-rated sales
covered by its receipts or invoices. It also became part of 1997 NIRC
on November 1, 2005 not diminishing the binding force of the prior
enactment. The requirement is reasonable and in accord with
efficient collection of VAT preventing false claims and helps
South African Airways Vs. Petitioner South African Airways is a foreign Whether or not petitioner’s In the instant case, the general rule is that resident foreign
Commissioner Of Internal corporation organized and existing under and by sourced within the Philippines corporations shall be liable for a 32% income tax on their income
Revenue virtue of the laws of the Republic of South Africa. Its and is to be taxed at 32% of from within the Philippines, except for resident foreign corporations
G.R NO. 180356; principal office is located at Airways Park, Jones the Gross Billings that are international carriers that derive income from carriage of
FEBRUARY 16, 2010 Road, Johannesburg International Airport, South persons, excess baggage, cargo and mail originating from the

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 2010 TAX CASES
Africa. In the Philippines, it is an internal air carrier Philippines which shall be taxed at 2 1/2% of their Gross Philippine
having no landing rights in the country. Petitioner has Billings. To reiterate, the correct interpretation of the provisions is
(Balubal, Eden) a general sales agent in the Philippines, Aerotel that, if an international air carrier maintains flights to and from the
Limited Corporation (Aerotel). Aerotel sells passage Philippines, it shall be taxed at the rate of 2 1/2% of its Gross
documents for compensation or commission for Philippine Billings, while international air carriers that do not have
petitioners off-line flights for the carriage of flights to and from the Philippines but nonetheless earn income from
passengers and cargo between ports or points other activities in the country will be taxed at the rate of 32% of such
outside the territorial jurisdiction of the Philippines. income.
Petitioner is not registered with the Securities and
Exchange Commission as a corporation, branch
office, or partnership. It is not licensed to do business
in the Philippines.
For the taxable year 2000, petitioner filed separate
quarterly and annual income tax returns for its off-line
flights in the rate of 32% of it’s GPB. However, he filed
with the BIR for claim for refund contending that it’s
income should be taxed at the rate of 2 ½ % of it’s
GPB.
TFS Incorporated Vs. Petitioner TFS, Incorporated is a duly organized Whether Or Not Petitioner Is The Court cited the case of First Planters Pawnshop Inc. v. CIR;
Commission Of Internal domestic corporation engaged in the pawnshop Subject To The 10% VAT. “Since petitioner is a non-bank financial intermediary, it is subject to
Revenue business. On January 15, 2002, petitioner received a 10% VAT for the tax years 1996 to 2002; however, with the levy,
GR. NO. 166829 APRIL 19, Preliminary Assessment Notice (PAN) for deficiency assessment and collection of VAT from non-bank financial
2010 value added tax (VAT), expanded withholding tax intermediaries being specifically deferred by law, then petitioner is
(EWT) and compromise penalty for the taxable year not liable for VAT during these tax years”.
1998. Insisting that there was no basis for the
(Balubal, Eden) issuance of PAN, petitioner through a letter requested Petitioner is not liable for VAT for the year 1998. Consequently, the
the Bureau of Internal Revenue (BIR) to withdraw and VAT deficiency assessment issued by the BIR against petitioner has
set aside the assessments. Respondent no legal basis and must therefore be cancelled. In the same vein,
Commissioner of Internal Revenue (CIR) informed the imposition of surcharge and interest must be deleted.
petitioner that a Final Assessment Notice (FAN) was
issued on January 25, 2002, and that petitioner had
until February 22, 2002 within which to file a protest
letter. On February 20, 2002, petitioner protested the
Final Assessment Notice (FAN). There being no
action taken by the CIR, petitioner filed a Petition for
Review] with the CTA.

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 2010 TAX CASES
During trial, petitioner offered to compromise and to
settle the assessment for deficiency EWT with the
BIR. Hence, on September 24, 2003, it filed a
Manifestation and Motion withdrawing its appeal on
the deficiency EWT, leaving only the issue of VAT on
pawnshops to be threshed out. Since no opposition
was made by the CIR to the Motion, the same was
granted by the CTA.
Miguel J. Osorio Pension Petitioner is a non-stock and nonprofit corporation – it
Foundation, Inc. vs. CA and was organized for the purpose of holding title to and
CIR(GR 162175 administering the employees trust or retirement funds
June 28, 2010) (Employees Trust Fund) established for the benefit of
the employees of Victoria’s Milling Company Inc.
( Abella, Khat) (VMC). Petitioner as trustee claims that the income
earned by the employees Trust Fund is tax exempt
under Sec. 53(b) (now Sec. 60 (b) of the NIRC.
Petitioner as trustee of the employees fund invested
part of said fund to purchase a lot in Madrigal
Business Park (MBP) located in Muntinlupa. Since
petitioner needed funds to pay the retirement and
pension benefits of VMC employees and to reimburse
advances made by VMC, petitioner’s board of
trustees authorized the sale of its share in the MBP
lot.
VMC eventually sold the MBP lot to Metrobank and as
withholding agent; Metrobank paid the amount of PHP
6, 125, 625.00 as withholding tax on the sale of the
real property.
Petitioner claims that it is a co-owner of the MBP lot
as trustee of the Employees Trust Fund. Further, it
contends that the Employees Trust Fund is exempt
from income tax. Since petitioner as trustee
purchased 49.59% of the MBP lot using funds of the
Trust Fund, it asserts that their 49.59% share in the
Whether or not petitioner is
entitled to claim a refund for
the income tax paid on the
sale of its co-owned MBP lot
in its capacity as trustee of the
Employees Trust Fund.
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The court ruled that, the tax-exempt character of petitioner’s
Employees Trust Fund is not an issue in this case because the tax-
exempt character of the Employees Trust Fund has long been
settled. It is also settled that petitioner exist for the purpose of
holding title to and administering the tax exempt Employees Trust
Fund which was established for the benefit of VMC’s employees. As
such, petitioner has the personality to claim tax refunds due to the
Employees Trust Fund.
As to the proof of co-ownership of the MBP lot, the law expressly
allows a co-owner (1st co-owner) of a parcel of land to register his
proportionate share in the name of his co-owner (2nd co-owner) in
whose name the entire land is registered. The 2nd co-owner serves
as a legal trustee of the 1st co-owner insofar as the proportionate
share of the 1st co-owner is concerned. The 1st co-owner remains
the owner of his proportionate share and not the 2nd co-owner in
whose name the entire land is registered, as provided in Art. 1452 of
the NCC.
The income from the trust fund investments is therefore exempt from
the payment of income tax and consequently from the payment of
the creditable withholding tax on the sale of their real property. Thus,
the Employees Trust Fund owns 49.59% of the MBP lot.
Since petitioner has proven that the income from the sale of the
MBP lot came from an investment by the Employees Trust Fund,
petitioner as trustee is entitled to claim the tax refund of PHP 3, 037,
500.00 – which was erroneously paid in the sale of the MBP lot.
 2010 TAX CASES
income tax paid amounting to PHP 3, 037, 697.40
rounded off to PHP 3, 037, 500 should be refunded. It
maintained that the tax exemption of the Trust Fund
rendered the payment of income tax as illegal or
erroneous – which resulted in filing a claim for tax
refund.

As action, the BIR stated that under Sec 26 of the Tax

Code, petitioner is not exempt from tax on its income
from the sale of real property. The BIR asked
petitioner to submit documents to prove its co-
ownership of the MBP lot and its exemption from tax.

Petitioner in reply said that the applicable provision

granting its claim for tax exemption is not Sec. 26 but
Sec. 53 (b) of the Tax Code and that its co-ownership
of the MBP lot is evidenced by Board Resolution #s
92-34 and 96-46 and the MOA among petitioner, VMC
and its subsidiaries.

Since the BIR failed to act on petitioner’s claim, it was

elevated to CIR - again no action was taken hence, a
petition for tax refund before the CTA was filed.

The CTA ruled that Sec. 53 (b) of the Tax Code talks
about exemption from income tax on the income or
earnings of the Employees trust Fund. Also, that the
petitioner is not the pension trust itself but is a
separate and distinct entity whose function is to
administer the pension plan for some VMC
employees.

As to the co-ownership of the lot, the CTA ruled that

the evidences are self-serving and cannot themselves
prove the co-ownership of the petitioner of the MBP
lot. Further, petitioner failed to present any evidence
to prove that the money used to purchase the MBP lot

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 2010 TAX CASES
came from the Employees Trust Fund. Thus,
petitioner is estopped from claiming a tax exemption.

When the claim was filed before the CA, the CA

agreed that the pieces of documentary evidence
submitted are largely self-serving and can be
contrived easily and that the documents failed to show
that the funds used to purchase the MBP lot came
from the Employees Trust Fund. Hence this petition.
Lepanto Consolidated Whether or not a mining The Court ruled in affirmative. Sand and gravel taxes may be
Mining Company Vs Hon. corporation is liable for taxes imposed even on non-commercial extractions. Since Section 138 of
Mauricio B. Ambanloc, in imposed by a province for the the Local Government Code (Republic Act 7160) authorized
his capacity as the extraction of sand and gravel provinces to impose a tax on the extraction of sand and gravel from
Provincial Treasurer of from areas covered by its public lands, without distinguishing between personal and
Benguet (G.R. No. 180639 mining lease with the national commercial uses, then the tax should be deemed to cover
June 29, 2010) government and used extractions for both purposes.
exclusively in its mining
(Maramag, Jocelyn) operations. The provincial revenue code provides that the subject tax had to be
paid prior to the issuance of the permit to extract sand and gravel. Its
Article D, Section 2, enumerates four kinds of permits: commercial,
industrial, special, and gratuitous. Special permits covered only
personal use of the extracted materials and did not allow the
permitees to sell materials coming from his concession. Among
applicants for permits, however, only gratuitous permits were exempt
from the sand and gravel tax. It follows that persons who applied for
special permits needed to pay the tax, even though they did not
extract materials for commercial purposes. Thus, the tax needed to
be paid regardless of the applicability of the administrative and
reportorial requirements of that revenue code.

Lepanto’s extraction and use of mineral deposits bears the consent

of the national government, in line with the principle that exploration
of natural resources can only be done under the control and
supervision of the State. The contract makes no mention of any
exemption from securing government permits.

An exemption from the requirements of the provincial government

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 2010 TAX CASES
Commissioner Of Internal Eastern filed with the CIR a written application for
Revenue, Petitioner, Vs. refund or credit of unapplied input taxes it paid on the
Eastern imported equipment purchased during 1995 and 1996
Telecommunications amounting toP22,013,134.00. To toll the running
Philippines, Inc., of the two-year prescriptive period under the same
Respondent.(G.R. No. provision, Eastern filed an appeal with the CTA. The
163835 July 7, CTA found that Eastern has a valid claim for the
2010) refund/credit of the unapplied input taxes, declaring
it entitled to a tax refund of P16,229,100.00.The CIR
(Ferrer, Elena Marie) filed a motion for reconsideration of the CTA’s
decision. Subsequently, it filed a supplemental motion
for reconsideration. The CTA denied the CIR’s
motion for reconsideration.
The CIR then elevated the case to the CA, who
affirmed the CTA ruling and likewise denied
the subsequent motion for reconsideration. Hence,
the present petition. The CIR posits that, applying
Section 104(A) of the Tax Code on apportionment of
tax credits, Eastern is entitled to a tax refund of only a
portion of the amount claimed. Since the VAT returns
clearly reflected income from exempt sales, the CIR
asserts that this constitutes as an admission on
Eastern’s part that it engaged in transactions not
subject to VAT.
Hence, the proportionate allocation of the tax credit to
VAT and non-VAT transactions provided in Section
104(A)of the Tax Code should apply. Eastern objects
to the arguments raised in the petition, alleging
that these have not been raised in the Answer filed by
the CIR before the CTA and was only raised. In fact,
theCIR only raised the applicability of Section 104(A)
of the Tax Code in his supplemental motion for
should have a clear basis, whether in law, ordinance, or even from
the contract itself. Unfortunately for Lepanto, it failed to show its
entitlement to such exemption.
Whether or not the rule in Yes. The question of the applicability of Section 104(A) of the Tax
Section 104(A) of the Tax Code was already raised but the tax court did not rule on it. This
Code on the apportionment failure should not be taken against the CIR.
of tax credits can be
applied in appreciating The mere declaration of exempt sales in the VAT returns, whether
Eastern’s claim for tax refund, based on Section 103 of the Tax Code or some other special law,
considering that the matter should have prompted for the application of Section 104 (A) of the
was raised by the CIR only Tax Code to Eastern’s claim. The general rule is that appeals can
when he sought only raise questions of law or fact that (a) were raised in the court
reconsideration of the CTA below, and (b)are within the issues framed by the parties therein
ruling (People v. Echegaray, G.R. No. 117472). An issue which was
neither averred in the pleadings nor raised during trial in the court
below cannot be raised for the first time on appeal.
The rule against raising new issues on appeal is not without
exceptions; it is a procedural rule that the Court may relax when
compelling reasons so warrant or when justice requires it.
What constitutes good and sufficient cause that would merit
suspension of the rules is discretionary upon the courts (CIR v.
Mirant Pagbilao Corporation, G.R. No.159593). Another exception is
when the question involves matters of public importance. “Taxes
are the lifeblood of the government.” For this reason, the
right of taxation cannot easily be surrendered; statutes granting
tax exemptions are considered as a derogation of the
sovereign authority and are strictly construed against the
person or entity claiming the exemption. Claims for tax refunds,
when based on statutes granting tax exemption or tax refund,
partake of the nature of an exemption; thus, the rule of strict
interpretation against the taxpayer-claimant similarly applies
(CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75)
The taxpayer is charged with the heavy burden of proving that he
has complied with and satisfied all the statutory and administrative
requirements to be entitled to the tax refund. This burden cannot
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 2010 TAX CASES
reconsideration of the CTA’s ruling. Eastern claims
that for the CIR to raise such an issue now would
constitute a violation of its right to due process;
following settled rules of procedure and fair play, the
CIR should not be allowed at the appeal level to
change his theory of the case. Eastern further argues
that there is no evidence on record that would
evidently show that respondent is also engaged in
other transactions that are not subject to VAT.
CIR vs Smart Respondent Smart Communication Inc, is a Whether or not the
Communications Inc.(G.R. corporation organized and existing under Philippine respondent has the right to file
Nos. 179045-46; August 25, Law. It is an enterprise duly registered with the Board the claim for refund.
2010) of Investments. On May 25, 2001, respondent entered
into three agreements for Programming and
(Taguinod, Jelyne) Consultancy Services with Prism Transactive, a non-
resident corporation duly organized and existing
under the laws of Malaysia. Under the agreements,
Prism was to provide programming and consultancy
services for installation and implementation of Smart
Money and Mobile Banking Service Sim Applications
and private Text Platform.
On June 25, 2001, Prism billed the respondent in the
amount of US $ 547,822.45. thinking that these
payments constitute royalties, respondent withheld
the amount of US$136,955.61 representing the 25%
royalty tax under the RP-Malaysia Tax Treaty. On
September 25, 2001, respondent filed its monthly
remittance return of final income taxes withheld for the
month of August 2001.
On September 24, 2003 or within the 2-year period to
claim a refund, respondent filed with the BIR, through
the International Tax Affairs Division an Administrative
claim for refund of the amount P7,008,840.43. Due
the failure of the CIR to act on the claim for refund,
respondent filed a petition for review with the CTA.
7
be offset by the non-observance of procedural technicalities by
the government’s tax agents when the non-observance of the
remedial measure addressing it does not in any manner
prejudice the taxpayer’s due process rights. Lapses in the literal
observance of a rule of procedure maybe overlooked when they
have not prejudiced the adverse party and especially when they are
more consistent with upholding settled principles in taxation.
Yes. Under Sec. 204 (c) and 229 of NIRC. The person entitled to
claim a tax is the taxpayer. However, in case the taxpayer does not
file a claim for refund, the withholding agent may file the claim. In
CIR vs Procter and Gamble Philippines Manufacturing Corp., a
withholding agent was considered a proper party to file a claim for
refund of withheld taxes of its foreign parent company.
The petitioner submits that the ruling applies only when the
withholding agent and the taxpayer are related parties, the court do
not agree. Although such relationship between taxpayer and
withholding agent is a factor, there is nothing in the decision to
suggest that such relationship is required or that lack of such
relationship deprives the withholding agent of the right to file a claim
for refund.
Rather, what is clear in the decision is that a withholding agent has
the legal right to file a claim for refund: 2 reasons-
(1) he is a taxpayer, as he is personally liable for the withholding tax
as well as for deficiency assessments, surcharges and penalties
should the amount of the withheld taxes be finally found to be less
than the amount that should have been withheld under law;
(2) as an agent of the taxpayer, his authority to file the necessary
income tax return and to remit the tax withheld to the government
impliedly includes the authority to file a claim for refund and to bring
an action for recovery of such claim.
It is however significant to add that while the withholding agent has
 2010 TAX CASES
Respondent claimed that it is entitled to a refund
because the payments made to Prism are not
royalties but business profits, pursuant to the
definition of royalties under the RP-MalaysiaTax
Treaty. Respondent further avered that since under
Art. 7 of the RP-Malayasia Tax Treaty, business
profits are taxable in Philippines only if attributable to
a permanent establishment in the Philippines the Whether or not the payments
payments made to Prism, a Malaysian company with made to Prism constitute
no permanent establishment in the Philippines should business profits or royalties.
not be taxed.
On December 1, 2003, petitioner filed its answer
arguing that respondent, as withholding agent, is not a
party-in-interest to file the claim for refund, and that
assuming for the sake of argument that it is the
proper party, there is no showing that the payments
made to Prism constitute profits.
The CTA upheld the respondent’s right to file the
claim for refund. However, as to the claim for refund, it
found out that respondent is entitled only to a partial
refund. Although it agreed that the payments for the
CM and Sim Application agreement are business
profits, and therefore not subject to tax under the RP-
Malaysia Tax Treaty, the second division found the
payments for the SDM agreement a royalty subject to
withholding tax. Both parties moved for partial
reconsideration which was denied. Both parties
appealed to CTA en Banc, the decision of the second
division was affirmed.
Petitioner sought for reconsideration, denied. Hence
this petition. It contends that the cases relied upon by
the CTA in upholding the respondent’s right to claim
the refund are inapplicable since the withholding
agents therein are wholly owned subsidiaries of the
8
the right to recover the taxes erroneously or illegally collected, he
nevertheless has the obligation to remit the same to the principal
taxpayer. As an agent of the taxpayer, it is his duty to return what he
has recovered, otherwise, he would be unjustly enriching himself at
the expense of the principal taxpayer from whom the taxes were
withheld and from whom he derives his legal right to file a claim for
refund.
It is a Business Profit. Under the RP-Malaysia Tax Treaty, the term
royalties is defined as payment of any kind received as consideration
for :
(1) use of, or the right to use any patent, trademark, design or
model, plan, secret formula or process, any copyright of literary,
artistic or scientific work, or the use of or the right to use, industrial,
commercial or scientific equipment or for information concerning
industrial, commercial or scientific experience;
(2) the use of or the right to use cinematograph films, or tapes for
radio or television broadcasting, these are taxed at the rate of 25%
of the gross amount.
The business profits of an enterprise of a contracting state is taxable
only in that state through a permanent establishment. The term
permanent establishment is defined as a fixed place of business, an
enterprise of a contracting state if it carries on supervisory activities
in that other state for more than 6 months in connection with a
construction, installation or assembly project which is being
undertaken in that other state. In the instant case, it was established
that Prism does not have a permanent establishment in the
Philippines, hence, business profits derived from Prisms dealings
with respondent are not taxable. The question whether the payments
made to Prism are business profits and not royalties. It was clear in
the provision in the agreement. Prism has intellectual property right
over the SDM program but not over the CM & Sim application
programs as the proprietary rights of these program belong to
respondent. In other words, out of the payments made to Prism, only
the payment for the SDM program is not a royalty subject to a 25%
withholding tax. A refund of the erroneously withheld royalties taxes
for the payments pertaining to the CM and Sim application the
 2010 TAX CASES
principal taxpayer, unlike in the instant case, the government has no right to retain what does not belong to it.
withholding agent and taxpayer are unrelated entities.
The petition is denied.
It further claims that since respondent did not file the
claim on behalf of Prism, it has no legal standing to
claim the refund assuming that respondent is the
proper party, petitioner contends that it is still not
entitled to any refund because the payments made to
prism are taxable as royalties having been made in
consideration for the use of programs owned by
Prism.
Respondent on the other hand maintains that it is the
proper party to file a claim for refund as it has the
statutory and primary responsibility and liability to
withhold and remit the taxes to the BIR. It points out
that under the withholding tax system, the agent-
payor becomes a payee by fiction of law because the
law makes the agent personally liable for the tax
arising from the breach of its duty to withhold. Thus,
the fact that respondent is not in any way related to
Prism is immaterial. Moreover, respondent asserts
that the payments made to Prism do not fall under the
definition of royalties since the agreements are for
programming and consultancy services only.
United Airlines, Inc., Petitioner used to be an online carrier but ceased Whether or not the petitioner No. The petition has no merit.
Petitioner, operating cargo flights from the Philippines starting is entitled to a refund of the
Vs.Commissioner Of 2001. It is now an offline international air carrier but amount of ₱5,028,813.23 it Under Section 72 of the NIRC, the CTA can make a valid finding that
internal Revenue, has a general sales agent in the Philippines which paid as income tax on its petitioner made erroneous deductions on its gross cargo revenue;
Respondent.(G.R. No. sells passage documents for its off-line flights for passenger revenues in 1999. that because of the erroneous deductions, petitioner reported a
178788. September 29, carriage of passengers and cargo. It filed a claim for lower cargo revenue and paid a lower income tax thereon; and that
2010) refund on the Gross Philippine Billings (GPB) tax it petitioner's underpayment of the income tax on cargo revenue is
paid. The CTA ruled that Petitioner was not liable for even higher than the income tax it paid on passenger revenue
(Ferrer, Elena Marie) the GBP but was liable to pay 32% tax on its net subject of the claim for refund, such that the refund cannot be
income derived from the sales of passage documents granted.
in the Philippines. The grant of a refund is founded on the assumption that the tax
Petitioner elevated the case to the CTA En Banc return is valid, that is, the facts stated therein are true and correct.
which affirmed the decision of the First Division. The deficiency assessment, although not yet final, created a doubt

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2010 TAX CASES
as to and constitutes a challenge against the truth and accuracy of
the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the
refund.

Moreover, to grant the refund without determination of the proper

assessment and the tax due would inevitably result in multiplicity of
proceedings or suits. If the deficiency assessment should
subsequently be upheld, the Government will be forced to institute
anew a proceeding for the recovery of erroneously refunded taxes
which recourse must be filed within the prescriptive period of ten
years after discovery of the falsity, fraud or omission in the false or
fraudulent return involved.

This would necessarily require and entail additional efforts and

expenses on the part of the Government, impose a burden on and a
drain of government funds, and impede or delay the collection of
much-needed revenue for governmental operations.
Here, the subject of claim for tax refund is the tax paid on passenger
revenue for taxable year 1999 at the time when petitioner was still
operating cargo flights originating from the Philippines although it
had ceased passenger flight operations. The CTA found that
petitioner had underpaid its GPB tax for 1999 because petitioner had
made deductions from its gross cargo revenues in the income tax
return it filed for the taxable year 1999, the amount of underpayment
even greater than the refund sought for erroneously paid GPB tax on
passenger revenues for the same taxable period. Hence, the CTA
ruled petitioner is not entitled to a tax refund.

We must emphasize that tax refunds, like tax exemptions, are

construed strictly against the taxpayer and liberally in favor of the
taxing authority. In any event, petitioner has not discharged its
burden of proof in establishing the factual basis for its claim for a
refund and we find no reason to disturb the ruling of the CTA. It has
been a long-standing policy and practice of the Court to respect the
conclusions of quasi-judicial agencies such as the CTA, a highly
specialized body specifically created for the purpose of reviewing tax

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 2010 TAX CASES
Commissioner of Internal On September 30, 2004, Aichi Forging filed a claim
Revenue vs Aichi Forging for refund/credit of input VAT attributable to its zero-
Company of Asia, Inc., (GR rated sales for the period July 1, 2002 to September
No. 184823, October 6, 30, 2002 with the CIR through the DOF One-Stop
2010) Shop. On the same day, Aichi Forging filed a Petition
for Review with the CTA for the same action. The BIR
(Azurin, Jastise) disputed the claim and alleged that the same was filed
beyond the two-year period given that 2004 was a
leap year and thus the claim should have been filed
on September 29, 2004. The CIR also raised issues
related to the reckoning of the 2-year period and the
simultaneous filing of the administrative and judicial
claims.
H. Tambunting Pawnshop, Petitioner, H.Tambunting Pawnshop, Inc. (petitioner),
Inc vs. CIR (GR No. 172394 a domestic corporation duly licensed to engage in the
October 13, 2010) pawnshop business received an assessment notice
from BIR demanding payment of deficiency VAT and
(Abella, Khat) compromise penalty for taxable year 2000 in the
amounts of PHP 5, 212, 404.52 and PHP 25, 000.00,
respectively. Petitioner disclaiming its liability
protested the assessment with the respondent CIR,
arguing that a pawnshop business was not subject to
VAT and compromise penalty.
Due to the inaction of CIR to the protest, petitioner
elevated the case with the CTA – the petition was
partially granted by the deletion of the compromise
penalty but petitioner was ordered to pay the taxes
due plus surcharge and delinquency interest.
cases.
Whether or not the Petitioner’s NO. The right to claim the refund must be reckoned from the “close
administrative claim filed out of the taxable quarter when the sales were made” – in this case
of time September 30, 2004. The Court added that the rules under Sections
204 (C) and 229 as cross-referred to Section 114 do not apply as
they only cover erroneous payments or illegal collections of taxes
which is not the case for refund of unutilized input VAT. Thus, the
claim was filed on time even if 2004 was a leap year since the
sanctioned method of counting is the number of months.
Whether or not the filing of the YES. Section 112 mandates that the taxpayer filing the refund must
judicial claim was premature either wait for the decision of the CIR or the lapse of the 120-day
period provided therein before filing its judicial claim. Failure to
observe this rule is fatal to a claim. Thus, Section 112 (A) was
interpreted to refer only to claims filed with the CIR and not appeals
to the CTA given that the word used is “application”.
Finally, the Court said that applying the 2-year period even to judicial
claims would render nugatory Section 112 (D) which already
provides for a specific period to appeal to the CTA --- i.e., (a) within
30 days after a decision within the 120-day period and (b) upon
expiry of the 120-day without a decision.
Whether or not a pawnshop The court ruled petitioner’s main argument that pawnshops are not
operator is liable for VAT and within the concept of all services and similar services as provided in
the compromise penalty. Section 108(A) of the NIRC and that the enumeration under Section
108(A) of the NIRC of services subject to VAT is exclusive has
merit.Moreover, it is settled that for purposes of determining their tax
liability, pawnshops are treated as non-bank financial intermediaries.
Accordingly, the consecutive deferments of the effectivity date of the
application of VAT on non-bank financial intermediaries like
pawnshops resulted in their non-liability for VAT during the affected
taxable years. Thus, the VAT deficiency assessment and the
surcharge served on the petitioner by BIR lacked legal basis and
must be canceled and petitioner is entitled to refund of any amount
paid pursuant to the settlement agreement corresponding to taxable
year 2000 only.
11
 2010 TAX CASES
Aggrieved by the decision of the CTA, petitioner filed
a motion for partial reconsideration with the CTA
Second Division, submitted a written manifestation
attaching a copy of BIR tax payment deposit slip and
the corresponding schedule evidencing its payment
for the years from 2000 to 2002 pursuant to a
settlement agreement with BIR allowing petitioner to
pay 25% of its VAT due – but the same was denied.

An appeal to the CTA en Banc was filed thereafter but

still, the same was denied. Hence, this petition.
Commissioner Of Internal Whether LMCEC and its The court grant the petition. There is no dispute that prior to the filing
Revenue Vs. Hon. Raul M. corporate officers may be of the complaint with the DOJ, the report on the tax fraud
Gonzalez, Secretary Of prosecuted for violation of investigation conducted on LMCEC disclosed that it made
Justice, L. M. Camus Sections 254 (Attempt to substantial under declarations in its income tax returns for 1997,
Engineering Corporation Evade or Defeat Tax) and 255 1998 and 1999. Pursuant to RR No. 12-99, a PAN was sent to and
(Represented By Luis M. (Willful Failure to Supply received by LMCEC on February 22, 2001 wherein it was notified of
Camus And Lino D. Correct and Accurate the proposed assessment of deficiency taxes amounting to
Mendoza) (G.R. No. Information and Pay Tax) P430,958,005.90 (income tax - P318,606,380.19 and VAT -
177279 October 13, 2010) P112,351,625.71) covering taxable years 1997, 1998 and 1999. In
response to said PAN, LMCEC sent a letter-protest to the TFD,
which denied the same on April 12, 2001 for lack of legal and factual
(Balubal, Eden) basis and also for having been filed beyond the 15-day reglementary
period.

As mentioned in the PAN, the revenue officers were not given the
opportunity to examine LMCECs books of accounts and other
accounting records because its officers failed to comply with the
subpoena duces tecum earlier issued, to verify its alleged under
declarations of income reported by the Bureaus informant under
Section 282 of the NIRC.

Respondent Secretary concurred with the Chief State Prosecutors

conclusion that there is insufficient evidence to establish probable
cause to charge private respondents under the above provisions,
based on the following findings: (

12

Commission of Internal
RevenueVs.Aquafresh
Seafoods, Inc.,(G.R. No.
170389 October 20, 2010)
(Guim, Amiel)
Commissioner Of Internal
Revenue Vs. Hambrecht &
Quist Philippines, Inc.- (GR
NO. 169225, November 17,
2010)
(Taguinod, Jelyn)
2010 TAX CASES
Whether the existing Revised
Zonal Values of Real
Properties in the City of Roxas
or The fair market value as
determined by BIR will be
used as basis for the capital
gains tax and
Documentary tax
In a letter dated February 15, 1993, respondent Whether or not the Court of
informed the BIR of its change of business address. Tax Appeals has jurisdiction
to rule that the governments
On November 4, 1993, respondent received a tracer- right to collect the tax has
letter or follow up letter dated October 11, 1993 prescribed.
demanding for payment of alleged deficiency income
and expanded withholding taxes for taxable year
1989. On December 3, 1993, respondent filed its
13
1) the tax deficiencies of LMCEC for taxable years 1997, 1998 and
1999 have all been settled or terminated, as in fact LMCEC was
issued a Certificate of Immunity and Letter of Termination, and
availed of the ERAP and VAP programs;
(2) there was no prior determination of the existence of fraud;
(3) the assessment notices are unnumbered, hence irregular and
suspect;
(4) the books of accounts and other accounting records may be
subject to audit examination only once in a given taxable year and
there is no proof that the case falls under the exceptions provided in
Section 235 of the NIRC; and
(5) petitioner committed forum shopping when it filed the instant
case even as the earlier criminal complaint (I.S. No. 00-956)
dismissed.
The Revised Zonal Values of Real Properties in the City of Roxas
must be followed for purposes of computing the CGT and DST. It is
undisputed that at the time of the sale of the subject properties found
in Barrio Banica, Roxas City, the same were classified as “RR,” or
residential, based on the 1995 Revised Zonal Value of Real
Properties. CIR, thus, cannot unilaterally change the zonal valuation
of such properties to “commercial” without first conducting a re-
evaluation of the zonal values as mandated under Section 6(E) of
the NIRC.
Zonal value is determined for the purpose of establishing a more
realistic basis for real property valuation. Since internal revenue
taxes, such as CGT and DST, are assessed on the basis of
valuation, the zonal valuation existing at the time of the sale should
be taken into account.
The jurisdiction of the CTA is governed by section 7 of Republic Act
No. 1125, as amended, and the term other matters referred to by the
CIR in its argument can be found in number (1) of the
aforementioned provision, to wit:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal, as herein
provided:
 2010 TAX CASES
protest letter against the alleged deficiency tax
assessments for 1989.
On November 7, 2001, nearly eight (8) years later,
respondents external auditors received a letter from
herein petitioner Commissioner of Internal Revenue
dated October 20, 2001' the letter advised the
respondent that petitioner had rendered a final
decision denying its protest on the ground that the
protest against the disputed tax assessment has
allegedly filed beyond the 30 day reglementary period
prescribed in then section 229 of the National Internal
Revenue Code
Respondent filed petition for review before the Court
of Tax Appeals to appeal the final decision of the
Commissioner of Internal Revenue denying its protest
against the deficiency income and withholding tax
assessments issued for taxable year 1989. The
original division held that the subject assessment
notice sent by registered mail on January 8, 1993 to
respondents former place of business was valid and
binding since respondent only gave formal notice of
its change of address on February 18, 1993 thus, the Whether or not the period to
assessment had become final and unappealable for collect the assessment has
failure of respondent to file a protest within the 30 day prescribed.
period provided by law However, the CTA held that
the CIR failed to collect the assessed taxes within the
prescriptive period'
The assessment against Hambrecht & Quist had
become final and unappelable since there was a
failure to protest the same within the 30-day period
provided by law. However, the CTA held that the BIR
failed to collect within the prescribed time and thus
ordered the cancellation of the assessment notice.
The CIR disputed the jurisdiction of the CTA arguing
14
1. Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code or other
law as part of law administered by the Bureau of Internal Revenue.
The appellate jurisdiction of the CTA is not limited to cases which
involve decisions of the CIR on matters relating to assessments or
refunds. The CTA law clearly bestows jurisdiction to the CTA even
on “other matters arising under the National Internal Revenue Code”.
Thus, the issue of whether the right of the CIR to collect has
prescribed, collection being one of the duties of the BIR, is
considered covered by the term “other matters”. The fact that
assessment has become final for failure to protest only means that
the validity or correctness of the assessment may no longer be
questioned on appeal. However, this issue is entirely distinct from
the issue of whether the right to collect has in fact prescribed.
In connection therewith, the NIRC also states that the collection of
taxes is one of the duties of the BIR. Thus, from the foregoing, the
issue of prescription of the BIR’s right to collect taxes may be
considered as covered by the term “other matters” over which the
CTA has appellate jurisdiction.
Yes, it already prescribed.
Section 224 of the 1986 NIRC provides that: Suspension of running
of statute. The running of the statute of limitations provided in
Sections 203 and 223 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in
respect of any deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the assessment
or beginning distraint or levy or a proceeding in court and for sixty
days thereafter; when the taxpayer requests for a re-investigation
which is granted by the Commissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which a
tax is being assessed or collected:
 2010 TAX CASES
that since the assessment had become final and
unappealable, the taxpayer can no longer dispute the
correctness of the assessment even before the CTA.
15
Provided, That, if the taxpayer informs the Commissioner of any
change in address, the statute will not be suspended; when the
warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines. (Emphasis supplied.)
The plain and unambiguous wording of the said provision dictates
that two requisites must concur before the period to enforce
collection may be suspended: (a) that the taxpayer requests for
reinvestigation, and (b) that petitioner grants such request
Consequently, the mere filing of a protest letter which is not granted
does not operate to suspend the running of the period to collect
taxes. In the case at bar, the records show that respondent filed a
request for reinvestigation on December 3, 1993, however, there is
no indication that petitioner acted upon respondents protest.
As the CTA Original Division in C.T.A. Case No. 6362 succinctly
pointed out in its Decision, to wit:
It is evident that the respondent did not conduct a reinvestigation,
the protest having been dismissed on the ground that the
assessment has become final and executory. There is nothing in the
record that would show what action was taken in connection with the
protest of the petitioner. In fact, petitioner did not hear anything from
the respondent nor received any communication from the
respondent relative to its protest, not until eight years later when the
final decision of the Commissioner was issued (TSN, March 7, 2002,
p. 24). In other words, the request for reinvestigation was not
granted. x x x.[10] (Emphasis supplied.)
Since the CIR failed to disprove the aforementioned findings of fact
of the CTA which are borne by substantial evidence on record, this
Court is constrained to uphold them as binding and true. The Court
ruled that the right to collect has indeed prescribed since there was
no proof that the request for reinvestigation was in fact granted/acted

Philippines Fisheries
Development
Authority(PFDA)VS.Central
Board of Assessment
Appeals, Local Board of
Assessment Appeals of
Lucena City, City of Lucena,
Lucena City Assessor and
Lucena City Treasurer
(G.R. No. 178030; December
15, 2010)
(Taguinod, Jelyn)
2010 TAX CASES
Lucena Fishing Port Complex is one of the fishery
infrastructure projects undertaken by the National
Government under the Nationwide Fishing Port
Package. It is located at Lucena City, was constructed
on a reclaimed land. The PFDA was created by virtue
of P.D. 977 as amended by TO 772, with functions
and powers to manage, operate and develop the
Navotas Fishing Port Complex and such other fishing
port complexes that may be established by the
authority. Pursuant thereto, Petitioner-Appellant
PFDA took over the management and operation of
LFPC in February 1992.On October 26, 1999, in a
letter addressed to PFDA, the City Government of
Lucena demanded payment of realty taxes on the
LFPC property for the period from 1993 to 1999 which
was received by PFDA on November 24, 1999. bOn
October 17, 2000, another demand letter was sent
this time covering the period 1993 to 2000.
On December 18, 2000 Petitioner-Appellant filed its
appeal before the local Board of Assessment Appeals
of Lucena City, which was dismissed for lack of merit.
MR was filed which was denied. PFDA appealed to
the Central Board of Assessment Appeals, the same
was dismissed for lack of merit. The CBAA ruled that:
ownership of LFPC has been handed over to the
pFDA, as provided for under Sec. 11 of PD 977 as
amended and declared under the MC 199 case
(Mactan Cebu International Airport Authority V.
Marcos) PD 977 provided for the exemption from
income tax under par. 2 Sec 10 thereof “the Authority
shall be exempted from the payment of income tax.
Nothing was said however about its exemption from
payment of real property tax: PFDA has no basis in
claiming real property exemption on its Fishing Port
Complexes. Reading Sec. 40 of PD 464 and Sec. 234
upon by the CIR. Thus, the period to collect was never suspended.
Whether or not PFDA is liable No.In a case of PFDA vs. CA, a 2007 case, the court resolved that
for the real property tax PFDA is an instrumentality of the government and is thus exempt
assessed on the Lucena from the payment of real property tax.
Fishing Port Complex
The Authority is not a GOCC but an instrumentality of the
government. The Authority has a capital stock but it is not divided
into shares of stocks. Also, it has no Stockholders or voting shares.
Hence, it is not a stock corporation. Neither is it a non-stock
corporation because it has no members. The Authority is actually a
national government instrumentality which is defined as an agency
of the national government, not integrated within the department
framework, vested with special functions or jurisdiction by law,
endowed with some if not all corporate powers administering special
funds, and enjoying operational autonomy usually through a charter.
When the law vests in a government instrumentality corporate
powers, the instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers.
Confirmed in a subsequent PFDA case-Navotas Fishing Port
Complex
Similarly the court holds that PFDA is a government instrumentality,
the PFDA is exempt from real property tax imposed on the LFPC,
except those portions which are leased to private persons or entities.
The exercise of the taxing power of LGU is subject to the limitations
enumerated in Section 133 of the LGC: LGU has no power to tax
instrumentalities of the National Government like the PFDA. Thus,
PFDA is not liable to pay real property tax assessed by the office of
the City Treasurer of Lucena City on the LFPC, except those
portions which are leased to private persons or entities.
Besides LFPC is a property of public dominion intended for public
use and is therefore exempt from real property tax under Section
234 (a) of the LGC.
16
 2010 TAX CASES
of RA 7160 however, provided such ground: LFPC is
owned by the RP, PFDA is only tasked to manage,
operate and develop the same. Hence, LFPC is
exempted from payment of realty tax.
The ownership of LFPC as passed by the RP to
PFDA is bourne by Direct evidence PD 977 as
amended. Therefore Petitioner-Appellant’s claim is
untenable

PFDA moved for reconsideration, denied. Appealed to

CTA, denied. CTA Ruling: PFDA is a GOCC and is
therefore subject to the real property tax imposed by
the local government. Pursuant to Sec. 232 in
relation to Sec. 193 and 234 of the CGC.
Furthermore, the CTA ruled that PFDA failed to prove
that sit is exempt from real property tax pursuant to
Sec. 234 of LGC. Hence this petition for review.

Asiaworld Properties Phil. Corp. vs. Petitioner is a domestic Corp. engaged in the
CIR, G.R. No. 171766; July 29
(Tayawa, Ma. Esperanza)
Whether the exercise of the option to carry- Section 76 of the NIRC of 1997 it states that once
business of real estate development. For CY over the excess income tax credit, which shall the option to carry over and apply the excess
ending Dec. 31, 2001 it filed its annual Income be applied against the tax due in the quarterly income tax against income tax due for the
Tax Return on April 5, 2002 and declared a succeeding taxable year, prohibits a claim for taxable quarters of the succeeding taxable years
corporate income taxod 1.2M but with refund in the subsequent taxable years for the has been made, such option shall be considered
refundable amount of 6.4M . In its 2001 ITR it unused portion of the excess tax credits irrevocable for that taxable period and no application
states that the amount of 7.4M representing carried over. for cash refund or issuance of a tax credit certificate
prior years excess credits was net of year shall be allowed.
1999 excess creditable withholding tax to be
refunded in the amount of 18M. Petitioner also
indicated in its ITR its option to carry over as
tax credit next year the overpayment. Hence
they filed with RDO request to refund the
amount of 18.4M allegedly representing partial
excess creditable tax withheld for the year
2001, therefore they are entitled to refund and
maintained their claim that the option to carry
17

Chevron Phils. Inc. vs
Conversion Development
G.R. No. 173863 Sept. 15,2010
(Ma. Esperanza Tayawa)
2010 TAX CASES
over and apply the excess quarterly income
taxable in the succeeding years is irrevocable
only for the next taxable period when the
excess payment was carried over. Before the
RDO could act on petitioners claim, they filed a
Petition for Review with CTA to toll the running
of the prescriptive period. The CTA denied the
petition for lack of merit. Filed a Motion for
Reconsideration but it was denied. Appealed
to CA but CA affirmed the decision
Bases Yes, it is within the limits of the police power if the
Whether or not the act of CDC in imposing State when it imposed royalty fees. In distinguishing
royalty fees be considered as valid exercise of tax and regulation as a form of police power, the
the police power determining factor is the purpose of the
implemented measure. It the purpose is primarily to
raise revenue then it will be deemed a tax even
though the measure results in some form of
regulation. On the other hand, police power of the
State even though incidentally, revenue is
generated. In this case it held that the subject
royalty fees form part of the regulatory framework to
ensure free flow or movement of petroleum fuel to
and from the CSEZ. The fact that the respondents
have the exclusive right to distribute and market
petroleum products within CSEZ pursuant to its joint
venture agreement with SBMA and CSBTI does not
diminish the regulatory purpose of the royalty fee for
the fuel products supplied by petitioner to its client
at the CSEZ. Respondent submit that the increased
administrative costs were triggered by the security
risks that have recently emerged, such as terrorist
strikes. The need for regulation is more evident in
the light of the 9/11 tragedy considering that what is
being moved from one location to another are highly
combustible fuel products that cause loss of lives
and damage to properties.
18